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Hausman test to examine whether the specification of the REM is correct or not. When analyzing this model practically, it should be noted that it contains both time-variant variables like GDP, exchange rate, and the ASEAN dummy, as well as time-invariant variables, such as distance.
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– Worldwide website. Exchange rate volatility is calculated from the partner countries’
exchange rate volatility by computing the standard deviation for each country. It is not difficult to get exchange rates from the IMF, and all rates are identical for the members of European Union as they all use the same currency, the euro.
3.4.1. The ASEAN Dummy
As Myanmar is member of ASEAN, the ASEAN dummy variable is used in this study as a measure of unity if the partner country is also an ASEAN member, and otherwise it is considered to be zero. Using an ASEAN dummy is one key point for this analysis as ASEAN is a critical regional organization for ASEAN member countries. In Myanmar’s current trade position, import is a more favorable point than export. The customs duties levied on the import of machinery, spare parts, and other inputs range from nil to 40 percent of the imported goods’
value (Asia Tax Guide, 2013).
3.4.2. Trade Conformity Index
The TCI measures the degree of trade complementarity or competitiveness between two countries. The TCI is calculated using a three-digit number assigned under the Standard International Trade Classification (SITC). It represents the commodities that are produced by a nation with similar factors and technology. Following the ways of Sohn (2005) and Hout &
Kakinaka (2007), the TCI measures the degree of trade complementarity between two countries and reflects factor endowment differences. The higher the degree of trade complementarity, the larger the differences in factor endowment and trade flow increase, as checked against the Heckscher–Ohlin model. The TCI between country i and country j is
63 calculated in the following form:
𝑇𝐶𝐼𝑖𝑗 = ∑𝑛𝑘=1𝑋𝑘𝑖 𝑀𝑘𝑗 [∑𝑛𝑘=1𝑋𝑘𝑖2 ∑𝑛𝑘=1𝑀𝑘𝑗2 ]
−1
2---(4)
where TCI equals trade conformity index, i and j refer to a country and its potential trade partner, and k means a commodity group. Xki is the share of commodity group k in the exports of country i, Mkj is the commodity group k’s share in the imports of the country j. Xki is the share of commodity group k in Myanmar's export to her partner countries, and Mkj is the share of product k in the partner country’s import from Myanmar. If the empirical result is captured by the measure of trade structure, it will be consistent with the Heckscher–Ohlin model of factor endowment difference between countries with inter-industry trade.
The TCI ranged from zero to one. The TCI is one means in which Myanmar’s export share is related to its partner countries’ import share, and Myanmar has an equal trade share against its partner countries. Where TCI equals zero, Myanmar’s export share is smaller than its partner country’s import share, and Myanmar does not have a perfectly fair-trade share against its partner country. The TCI is calculated based on a trade map of export and import shares of Myanmar and its partner countries. Myanmar and its partner countries’ bilateral trade in 2015 is a uniform commodity group of 85 electrical and electronic equipment products gathered from International Trade Centre of Trade Statistics for International Business Development (Trade Map).
However, the trade indicators to calculate various useful trade indices with the underlying UN Comtrade data show the TCI can support relevant information on predictions for intraregional trade. One benefit of this is that the values for states considering the formation
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of a regional trade agreement can be compared with others that have formed or tried to create similar arrangements. The World Bank calculates the TC trade indicator with this equation:
TCij = 100(1 – sum (|mik – xij| / 2)) ---(5)
Here, xij is the share of good i in global exports of country j and mik is the country k’s share of good i in all imports (Trade Indicator-World Bank). The index is zero if one country exports no product that is imported by the other, and if the export and import shares are both exactly 100.
Table 3.1 Data description
Variables
Unit N Mean Max Min Std. Dev.
Total Trade Value USD (mil) 260 869.22 24474.32 0.19 2291.68 Export Value USD (mil) 260 340.77 14161.96 0.00 1103.20 Import Value USD (mil) 260 528.47 10325.56 0.03 1322.94 Myanmar Real GDP USD (bil) 260 38.46 61.00 14.00 18.74
Partner Countries’
Real GDP USD (bil) 260 2257.52 16349.00 97.00 3336.17 Myanmar and
Partner Countries Real GDPs
USD (bil)
260 91570.44 997610.00 1345.00 158570
Distance km 260 5804.73 13472.00 815.00 3629.63
ASEAN Dummy 260 0.25 1.00 0.00 0.43
Trade Conformity
Index %
260 0.18 0.92 0.00 0.30
Exchange Rate
Volatility US $
260 0.0380 0.1225 0.00 0.0294
Sources: International Monetary Fund: Direction of Trade Statistics, World Economic Outlook Database, International Trade Statistics of International Trade Center, World Clock-Worldwide.
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Sohn (2005) explains that the estimate of the coefficient becomes positive when trade volume increases with the rising trade complementarities; this is precisely what is represented by the Heckscher–Ohlin trade model of inter-industry trade. On the other hand, the coefficient becomes negative when the trade volume increases with the falling trade complementarities.
This could occur where trade volume increases with increasing competitive trade structure and represents the differentiated product model of intra-industry trade. International trade allows for the creation of an integrated market that is larger than any one country’s market. Thus, it is possible to simultaneously offer consumers a greater variety of products and lower prices. The type of trade generated by this model is an intra-industry trade (Krugman, Obstfeld, & Melitz, 2012, p. 178). Regarding ‘inter-industry’ and ‘intra-industry,’
there is an important difference. In theory, the trade of products that belong to different industries is called inter-industry trade. By contrast, scholars define intra-industry trade as the trading of similar products that belong to the same industry. This has been a key factor in trade growth in recent decades.